When Will The Federal Reserve Raise Interest Rates Next (What Does That Have To Do With Gold)?

Tuesday, March 22, 2016

2000px-US-FederalReserveSystem-SealWhen the US Federal Reserve talks, the whole world listens. Specifically, when the Federal Reserve announces whether they’re increasing, decreasing, or keeping interest rates steady, just about everyone in the business world will stop what they’re doing to find out where US monetary policy is heading.

For a long time, the Federal Reserve’s interest rate policy has been considered a watermark for the US economy as a whole. If the Federal Reserve is confident in the US economy, so goes the thinking, then it can withstand higher interest rates. If the economy is performing sluggishly and needs a shot in the arm, then lower interest rates will follow. We’ve already seen how negative interest rates overseas have tried desperately to prop up economic action in the face of dwindling economic output.

If you’re keen on investing in gold, what do these interest rate levels have to do with your favorite investment…and what might you need to know about the coming interest rate announcements?

Don’t Always Believe What You Hear

There was an impression early on that 2016 was going to be a year of interest rate hikes. Then came the announcement the other week that the Fed might not hike interest rates four times in 2016—that it might only raise them twice. Although the Fed gave the impression that interest rates are still set to be increased, some investors pay closer attention to what the Federal Reserve does, not what it says. And in March, Janet Yellen, chairperson of the Federal Reserve, opted to keep interest at their current rates.

This leaves us wondering: when might the Federal Reserve raise interest rates? It appears that four interest rate hikes are out the window for 2016, but is it true that we still might see two hikes this year? San Francisco President of the Fed, John Williams, said that he would support an increase in April or June. And with the Federal Open Market Committee set to hold their next meeting on April 26th and 27th, that will certainly be news to mark on the calendar.

What does this all have to do with gold? Let’s look at little closer.

How Interest Rates Can Affect Your Gold Investments

When interest rates are low—and even negative—we’ll see investors generally flock to gold as a way to keep their investments strong. After all, negative interest rates mean that you generally have to pay the bank to hold on to your money. For many investors it’s simply cheaper to buy gold and wait until interest rates are higher. Generally, higher interest rates put downward pressure on gold while low interest rates put upward pressure—though this is not a hard and set rule.

Gold futures hit a 13-month high in March, as worries about international negative interest rates sent even previous gold bears to thinking about the metal. Since interest rates did not increase in March in the U.S., some of the hits gold has taken in the recent days may not last as long as you think. Since people who doubt the Fed’s sincerity about raising interest rates this year don’t expect an interest hike in April, it may be that gold isn’t done with its early 2016 run just yet. But now you know why it’s so important to watch what the Fed says—as well as what it does.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.